Next stop, tax stop
Daniel Korski 1:36pm
The Conservatives have been rightly looking to Sweden for ideas on education policy, now they should be looking a little further south, to Denmark, for inspiration on tax policy. In Denmark, a centre-right government has been in power for eight years and, despite technically being in a recession, the country’s thoroughly modern market economy and pro-active labor market policies – which combines easy hiring and firing with high benefits for the unemployed – is helping to weather the storm.
But a key ingredient for Prime Minister Anders Fogh Rasmussen’s success in a country seen as more social democratic than centre-right has been the "tax stop" (or "skattestoppet" in Danish), which froze all taxes and duties at their January 2001 level. Tax rates can be cut, but none can be raised.
First promised in the 2001 election, which saw the routing of Denmark’s long-standing Social Democratic government, the tax stop was the centre-right coalition’s answer to ever rising taxation. Fiscally, the goal was to arrest the growth of public spending (and halt the raising of taxes), especially at the local level. In reality, maintaining the tax stop implied a need to cut public spending while ensuring that the marginal tax rate did not acts as a barrier against people moving into work. Politically, it represented a compromise between the Conservatives - who wanted tax cuts and a flat tax rate at no higher than 50% - and the coalition-leading Liberals, who worried about the state of public finances.
Today, the policy is wildly popular with Danish voters and four years after its introduction even the Social Democrats accepted the principle – and politics - of the tax stop. As George Osborne pushes back against Gordon Brown’s end-of-summer economics focused re-launch, Denmark’s “tax stop” may be just the kind of policy that the would-be Conservative Chancellor should consider copying. It would bridge the gap between the tax-cutting instincts of the Conservative base and the concerns of deficit hawks who worry about creating a financial black hole.
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The Huntsman
August 19th, 2008 2:06pm Report this commentSafer ground!
It would be interesting to have some assessment of how the 'flat tax' experiment that some Eastern EU members and others are trying.
Superficially it is an attractive idea (not least in its scope for simplification of both the tax system and the possibility to make redundant several small armies of civil servants engaged in the complexities of e.g. the tax credit system).
My attraction to it is also based on the strong sense that it would work to the benefit of all levels of taxpayer and actually increase the level of compliance and decrease the level of evasion/avoidance.
At the moment McStalin's scorched earth policy puts the deficit hawks somewhat in the driving seat, but as a long term aim, I confess to finding this a very attractive idea.
Pleased to see you have chosen safer and more radical conservative ground.....
Thomas Widmann
August 19th, 2008 2:26pm Report this commentAlthough the "tax stop" has been quite popular because taxes can't rise, it's also disliked by many Danes because it makes it impossible to change behaviour by moving taxation from one item to another.
For instance, Denmark badly need to lower income tax and car taxes, but the tax stop means that no other taxes can be increased to pay for this.
Also, introducing more green taxes is impossible, even if everbody could be compensated by lowering other taxes.
So I do hope the Tories won't copy this policy verbatim, but opt for a more intelligent version that allows one tax to be increased if another tax is lowered by at least the same amount.
Augustus
August 19th, 2008 3:07pm Report this commentI'm not sure that you can compare the musical chairs structures of coalition governments in countries like Denmark to a majority Conservative government after the next election in Britain. And who, no doubt, will implement a fiscal policy true to their own convictions and style of government. No need to spend their time gaining approval from left-wing liberals, dyed-in-the-wool socialists, national peoples parties, Muslim-democrats and whatever else Danish voters come up with.
Tim Carpenter LPUK
August 19th, 2008 3:14pm Report this comment"Denmark badly need to lower income tax and car taxes, but the tax stop means that no other taxes can be increased to pay for this."
Er, cut spending, perhaps?
Verity
August 19th, 2008 3:41pm Report this commentAnders Fogh is my favourite politician after George Bush and John Bolton (who I accepte is not actually a politician).
He has a backbone of steel.
oldtimer
August 19th, 2008 5:50pm Report this commentI think that an early, if not the first, step for the Conservatives in government should be simplification of the existing tax regime. It would provide an opportunity at the same time for reform and restructuring some of the absurd anomalies in existing tax, credit and benefit rates.
TGF UKIP
August 19th, 2008 7:15pm Report this commentWOW! And this from europhile Guardianista Korski. The only problem, Daniel, is that to date, at least, Dave and Boy George have shown themselves as having far more in common with Sweden's Social Democrats than Denmark's Conservatives.
And as for more "green taxes," Thomas Widmann, who on earth wants them other than the uber Green headbangers who probably make up no more than 5% of the non sixth form population.
John
August 19th, 2008 9:51pm Report this commentHeadbangers, eh? Now we know why UKIP is widely - and rightly - regarded as a bunch of loonies.
T F Bundy
August 20th, 2008 1:39am Report this commentJohn: I'm not connected in any way with UKIP but I couldn't agree more about Green headbangers (although I prefer the term "watermelons"), especially if they genuinely believe that "green" taxes have anything whatsoever to do with protecting the environment.
David Lucas
August 20th, 2008 10:03am Report this commentThomas - while discretion to vary taxes is appealing the risk is the temptation to meddle, stealth-tax, a favour certain interests etc.
Tax-stop would be a strong discipline - like BoE independence - that is simple and clear.
That said with what Gordon Brown is doing to the public finances, I suspect Cameron will have - like Thatcher - undertake the unpopular task of restoring economic stability ready for Labour to screw it up again. Which might involve initial tax increases.
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